Money_How the Destruction of the Dollar Threatens the Global Economy - and What We Can Do About It

by Steve Forbes

  131 cast aside the wisdom of sound money Theodore Phalan, Thomas Rustici, and Deema Yazigi, “The Smoot-Hawley Tariff and the Great Depression,” Freeman, February 29, 2012, http://www.fee.org/the_freeman/detail/the-smoot-hawley-tariff-and-the-great-depression#axzz2uf2wQ89w.

  132 all the gold that has been mined is still in existence Ed Prior, “How Much Gold Is There in the World?” BBC.com, March 31, 2013, http://www.bbc.com/news/magazine-21969100.

  133 particles mined in the time of the Pharaohs Roy Jastram, The Golden Constant: The English and American Experience, 1560–1976 (New York: John Wiley & Sons, 1977), p. 189.

  133 price increases averaging only 1.7% a year Nathan Lewis, Gold: The Once and Future Money (Hoboken, NJ: John Wiley & Sons, 2007) p. 119.

  133 growth rate quickly returned to normal Ibid.

  133 were equivalent to an ounce of gold Nathan Lewis, “To Achieve a Successful Gold Standard, You Don’t Need Gold Coins,” Forbes.com, August 2, 2012, http://www.forbes.com/sites/nathanlewis/2012/08/02/to-achieve-a-successful-gold-standard-you-dont-need-gold-coins/.

  133 in excess of 60 to 1 Historic figures of the gold/silver ratio until 2012 are available at MeasuringWorth.com. Daily gold/silver ratios are available from Kitco Metals Inc., http://www.kitco.com/gold.londonfix.html.

  134 missing from British coins by the end of the seventeenth century Charles Larkin, “The Great Re-coinage of 1696,” Department of Economics & Institute for International Integration Studies, Trinity College Dublin, September 25, 2006; available at the Federal Reserve Bank of Atlanta, http://www.atl-res.com/finance/LARKIN2.pdf.

  134 a moral transgression no different from counterfeiting Murray Rothbard, Economic Thought Before Adam Smith: An Austrian Perspective on the History of Economic Thought, vol. 1 (Auburn, AL: Ludwig von Mises Institute, 2006), pp. 317–323, http://mises.org/document/3985/Economic-Thought-Before-Adam-Smith-An-Austrian-Perspective-on-the-History-of-Economic-Thought-Volume-I.

  134 a ratio that stood unchanged until 1931 Lewis, Gold: The Once and Future Money, op. cit.

  135 slightly devalued to $20.67 Alan Reynolds, Economic Education Bulletin 23(10), October 1983, American Institute for Economic Research, p. 1.

  135 all adopted gold-based money Lewis, “The 1870–1914 Gold Standard,” op. cit.

  136 throughout the world, including India, Argentina, China, Malaya, and Africa Nathan Lewis, Gold: The Monetary Polaris (New Berlin, NY: Canyon Maple Publishing, 2013), pp. 105–118.

  136 capital flows, not until 1999 Ibid., p. 113.

  137 surged a jaw-dropping 682% Ibid., p. 74.

  137 after adopting a gold standard in 1897 Richard Pipes, The Russian Revolution (New York: Random House, 1990), pp. 78–80.

  137 highest economic growth rate in Europe on the eve of World War I Ibid.

  137 from its archenemy Germany John Mosier, Verdun: The Lost History of the Most Important Battle of World War 1, 1914–1918 (New York: NAL Caliber, 2013) p. 123.

  138 trade and finance are built upon credit Sir Norman Angell, The Great Illusion: A Study of the Relation of Military Power to National Advantage (New York: Cosimo, 2010, original 1909), pp. 71–72.

  138 insuring their ships with British companies in London Niall Ferguson, The Ascent of Money: A Financial History of the World (New York: Penguin Books, 2008), p. 188.

  139 1.2 million pounds at 8% Lewis, The Monetary Polaris, op. cit., p. 87.

  139 far higher than the 4% rates the Dutch were paying Ibid.

  139 with no maturity at a rate as low as 3% Lewis, The Once and Future Money, op. cit., pp. 30–31.

  139 that rate went down to 2½% Ibid.

  139 Consols—that had no maturity, was 3.15% Lewis, “The 1870–1914 Gold Standard,” op. cit.

  140 traded with a small risk premium Lewis, Gold: The Monetary Polaris, op. cit., p. 113.

  140 slid to 3% by 1902 Ibid.

  140 reliable foundation for all financial and economic activity Ibid., p. 72.

  140 150-year bond at an interest rate of 3%! Gene Laber, “Bond Covenants and Forgone Opportunities: The Case of Burlington Northern Railroad Company,” Financial Management, June 6, 1992, http://www.thefreelibrary.com/Bond+covenants+and+forgone+opportunities%3A+the+case+of+Burlington...-a013632928.

  140 an average of 4.8% a year Nathan Lewis, “The Correlation Between the Gold Standard and Stupendous Growth Is Clear,” Forbes.com, April 11, 2013, http://www.forbes.com/sites/nathanlewis/2013/04/11/the-correlation-between-the-gold-standard-and-stupendous-growth-is-clear/.

  140 2000 to 2012, it rose a total of 7% Ibid.

  141 never gotten out of hand like it has Daniel Ryan, “The Gold Standard: Power to the People,” TheGoldStandardNow.org, April 16, 2011, Lehr-man Institute, http://www.thegoldstandardnow.org/key-blogs-6/217-gold-standard-power-to-people.

  142 spent by nations like France (3 to 4%) Jasen Castillo et al., “Military Expenditures and Economic Growth,” The Rand Corporation, Monograph Report, 2001, pp. 11–48.

  142 my re-election hinges on the Federal Reserve and a bunch of f****** bond traders David J. Lynch and Cordell Eddings, “Obama Says Real Boss in Default Showdown Means Bond Call Shots,” Bloomberg.com, October 11, 2013, http://www.bloomberg.com/news/2013-10-11/obama-says-real-boss-in-default-showdown-means-bonds-call-shots.html/.

  142 you can intimidate everybody Bob Woodward, The Agenda (New York: Simon & Schuster, 1995), p. 139.

  143 cost of living in Great Britain went up 0.1% a year Nathan Lewis lecture at Cato Institute on February 12, 2014, Washington, DC.

  144 above 3%, based on the highly imperfect CPI calculations Steve Forbes calculation using numbers from Inflationdata.com/CPI.

  144 around $3.50 and has been far higher “Retail Motor Gasoline and On-Highway Diesel Fuel Prices, 1949–2011,” 2012 Annual Energy Review, Table 5.24, U.S. Energy Information Administration.

  145 height of around 21% to 5% Effective Federal Funds Rate, Board of Governors of the Federal Reserve System, 2014, Fedprimerate.com.

  145 a high of 15.75% in 1981 to a little over 6% in the 1990s Sidney Homer and Richard Sylla, A History of Interest Rates (Hoboken, NJ: John Wiley & Sons, 2005), pp. 644–645.

  145 than in all of Europe and Japan put together George Gilder conversation with Steve Forbes, May 16, 2012.

  146 channel their energies elsewhere John Tamny, “August 15, 1971: President Nixon’s Golden Error,” RealClearMarkets.com, August 15, 2011, http://www.realclearmarkets.com/articles/2011/08/15/august_15_1971_president_nixons_golden_error_99193.html.

  146 make today’s cars look positively pedestrian John Tamny, “David Stockman Brings New Meaning to ‘Flawed Economic Analysis,’” Forbes.com, April 1, 2013, http://www.forbes.com/sites/johntamny/2013/04/01/david-stockman-brings-new-meaning-to-flawed-economic-analysis/2/.

  151 legislation introduced by U.S. Representative Ted Poe Louis Woodhill, “Gold Isn’t Money, but It Should Be Used to Define the Value of the Dollar,” Forbes.com, April 18, 2013.

  151 attack the system by buying up supplies of gold Ibid.

  155 was a believer in sound money Nathan Lewis, “Though It Nearly Strangled Reagan’s Revolution, Soft Money Conservatives Revive Friedman’s Monetarism,” Forbes.com, August 12, 2012, http://www.forbes.com/sites/nathanlewis/2012/08/12/though-it-nearly-strangled-reagans-revolution-soft-money-conservatives-revive-friedmans-monetarism/; and Seth Lipsky, “A Commission for the Fed’s Next 100 Years,” Wall Street Journal, March 25, 2013, http://online.wsj.com/news/articles/SB10001424127887324103504578379020635729326.

  156 exchange rate has to be adjusted Christopher Beam, “Gold Rush,” Slate.com, November 9, 2010, http://www.slate.com/articles/business/moneybox/2010/11/gold_rush.html.

  157 high of $1,900 an ounce in 2011 Hibah Yousuf, “Gold Tops $1,900, Looking ‘a Bit Bubbly,’” CNNMoney.com, August 23, 2011, http://money.cnn.com/2011/08/22/markets/gold_prices/.

  157 most liquid part of the money supply, is $2.6 trillion Figures available from the Federal Reserve Bank of
St. Louis’s Federal Reserve Economic Data system, http://research.stlouisfed.org/fred2/.

  158 U.S.population grew from 4 million to 76 million “Fast Facts,” United States’ Census Bureau, U.S. Department of Commerce, http://www.census.gov/history/www/through_the_decades/fast_facts/.

  159 stable money has never caused a financial crisis Nathan Lewis, “Let It Be Known That No Financial Crisis Was Ever Caused by Stable Money,” Forbes.com, October 14, 2012, http://www.forbes.com/sites/nathanlewis/2012/10/14/let-it-be-known-that-no-financial-crisis-was-ever-caused-by-stable-money/.

  160 with the top rate going from 25% to 63% Lewis, Gold: The Once and Future Money, op. cit., p. 228.

  160 devalued the franc in 1936 Christian Saint-Etienne, The Great Depression, 1929–1938: Lessons for the 1980s (Stanford, CA: Hoover Institution Press, 1984), p. 25.

  161 borrowing pounds and then selling them to buy marks Sebastian Mallaby, More Money Than God: Hedge Funds and the Making of the New Elite (New York: Penguin Group, 2010), pp. 147–171.

  161 the humiliated government caved and it floated the pound Ibid.

  161 attack on the ruble failed Emma O’Brien, “Russia Fueling Ruble Tumble with Loans, Banks Say,” Bloomberg.com, February 5, 2009, http://www.bloomberg.com/apps/news?pid=newsarchive&sid=alZcF5bve18o; Eric McCarthy, “Russian Ruble Leads Emerging-Market Currency Rally,” Wall Street Journal, April 25, 2013, http://online.wsj.com/news/articles/SB10001424127887323789704578444761251628342.

  Chapter 7: Surviving in the Meantime

  163 around $74,000 in 2013 “CPI Inflation Calculator,” Bureau of Labor Statistics, http://data.bls.gov/cgi-bin/cpicalc.pl?cost1=100%2C000.00&year1=2000&year2=2013.

  164 beat the Dow or the Standard & Poor’s 500 Index (S&P 500) “How to Start Investing,” The Motley Fool, accessed March 6, 2014, http://www.fool.com/seminars/sharebuilder/index.htm?sid=0008&lid=400&pid=0.

  164 hold on to your pocketbook if anyone tells you otherwise “Inflation: How to Protect Your Capital,” Forbes, April 1, 1974, p. 28.

  165 no one can accurately forecast a whim Louis Woodhill, “It’s Very Good That Gold Was a Bad Investment This Year,” Forbes.com, December 25, 2013, http://www.forbes.com/sites/louiswoodhill/2013/12/25/its-very-good-that-gold-was-a-bad-investment-this-year/.

  166 hundreds of individual stocks lost a lot more Alexandra Twin, “For Dow, Another 12-Year Low,” CNNMoney, March 9, 2009, http://money.cnn.com/2009/03/09/markets/markets_newyork/; Dealbook, “Slump Humbles Blue-Chip Stocks,” New York Times, March 6, 2009, http://dealbook.nytimes.com/2009/03/06/slump-humbling-blue-chip-stocks-once-dows-pride/?_php=true&_type=blogs&_r=0.

  166 plunged 75% as many appeared headed for collapse Peter Slatin, “Recharged REITs,” Forbes.com, June 5, 2009, http://www.forbes.com/forbes/2009/0622/finance-reits-commercial-real-estate.html.

  166 shareholders in many such institutions were wiped out altogether “KBW Bank Index (KBX), 1/3/07–4/3/09,” Yahoo! Finance, accessed March 6, 2014, http://yhoo.it/1hY2B9z.

  168 gold’s price remained around $350 an ounce “Daily Gold Price History,” USAGOLD, accessed March 6, 2014, http://www.usagold.com/reference/prices/history.html.

  168 5% from price appreciation of shares and 4½% from dividends Jeremy J. Siegel, Stocks for the Long Run: The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies, 4th ed. (New York: McGraw-Hill, 2008), pp. 12–13.

  168 the Dow appreciated 15-fold Dow Jones Industrial Average (DJIA) History Chart, October 1, 1929 thru December 26, 2013,” FedPrimeRate.com, http://www.fedprimerate.com/djia-chart-history.htm.

  169 3% a year, you come out ahead You can confirm this calculation using Bankrate’s IRA calculator, entering a single $10,000 contribution at age 23, and a 9% return, http://www.bankrate.com/calculators/retirement/traditional-ira-plan-calculator.aspx.

  169 saw the Dow Jones Industrial Average go down almost 90% “Bear Markets: Wall Street’s Worst,” BBC News, November 1, 2004, http://news.bbc.co.uk/2/hi/business/3746044.stm.

  170 but also in Poland, Hungary, and Argentina “Government Has Contemplated Seizing Pension Money for over a Decade,” Washington’s Blog, October 20, 2013, http://www.washingtonsblog.com/2013/10/government-has-contemplated-seizing-pension-money-for-over-a-decade.html.

  170 social security accounts that were privatized 30 years ago “Piñera vs. Piñera in the Battle of Chilean pensions,” Santiago Times, June 27, 2013, http://santiagotimes.cl/pinera-vs-pinera-in-the-battle-of-chilean-pensions/.

  171 index funds today are immensely popular John C. Bogle, “The First Index Mutual Fund: A History of Vanguard Index Trust and the Vanguard Index Strategy,” speech on April 2007 [quoting Rex Sinquefield of American Nation Bank], http://www.vanguard.com/bogle_site/lib/sp19970401.html; Morgan Korn, “Have Index Funds Become Too Popular?,” The Daily Ticker, December 13, 2013, http://finance.yahoo.com/blogs/daily-ticker/have-index-funds-become-too-popular-164329264.html.

  172 at least 1.5% for the typical mutual fund “Vanguard Total Stock Market Index Fund Shares,” Vanguard, accessed March 6, 2014, https://personal.vanguard.com/us/funds/snapshot?FundId=0085&FundIntExt=INT.

  174 people approach investing the way they should play tennis Rick Ferri, “Indexing Hero Charles Ellis,” Forbes.com, June 18, 20012, http://www.forbes.com/sites/rickferri/2012/06/18/indexing-hero-charles-ellis/.

  175 inflation got as high as 4% in the past decade “Current U.S. Inflation Rates: 2004–1014,” U.S. Inflation Calculator, accessed March 6, 2014, http://www.usinflationcalculator.com/inflation/current-inflation-rates/.

  176 the worst February for stocks since 1933 Peter A. McKay, “Brutal February for Blue Chips,” Wall Street Journal, March 1, 2009, http://online.wsj.com/news/articles/SB123573389322793621.

  176 40 times higher “Dow Jones Industrial Average (1900–Present Monthly),” StockCharts.com, accessed April 6, 2014, http://stockcharts.com/freecharts/historical/djia1900.html.

  177 continued to pull money out of equity funds until late 2012 Andrew Ross Sorkin, “Why Are Investors Fleeing Equities? Hint: It’s Not the Computers,” New York Times, August 6, 2012, http://dealbook.nytimes.com/2012/08/06/why-are-investors-fleeing-equities-hint-its-not-the-computers/?_php=true&_type=blogs&_r=0.

  177 Fed’s quantitative easing programs had created a bubble Peter Schiff, “After Bernanke, More Turbulence: Opposing View,” The Peter Schiff Show, January 31, 2013, https://www.schiffradio.com/blog?action=blogArchive&blogTag=quantitative%20easing.

  177 mature on optimism, and die on euphoria John Christy, “Believe in the Market’s Healthy Skepticism,” Forbes.com, February 5, 2010, http://www.forbes.com/2010/02/05/templeton-canon-msci-personal-finance-investing-ideas-novo-nordisk.html.

  177 when everyone is saying the sky is falling, you take your money out Steve Forbes interview with Daniel Kahneman, Forbes.com, January 24, 2013, http://www.forbes.com/sites/steveforbes/2013/01/24/nobel-prize-winner-daniel-kahneman-lessons-from-hitlers-ss-and-the-danger-in-trusting-your-gut/.

  178 in which he warned about market “irrational exuberance” “Remarks by Chairman Alan Greenspan,” The Federal Reserve Board, December 5, 1996, http://www.federalreserve.gov/boarddocs/speeches/1996/19961205.htm.

  178 peaked in 1997, not 2000 Charles P. Himmelberg, James M. Mahoney, April Bang, and Brian Chernoff, “Recent Revisions to Corporate Profits: What We Know and When We Knew it,” Current Issues in Economics and Finance, Federal Reserve Bank of New York, March 2004, vol. 10, no. 3, esp. Chart 1, http://www.newyorkfed.org/research/current_issues/ci10-3/ci10-3.html.

  179 the banks went away and the coffeehouses returned Conversation between Peter Drucker and Steve Forbes, 1983.

  181 the Nikkei is at 15,000 “Nikkei 225,” 1984-Present, Yahoo! Finance, accessed March 6, 2014, http://yhoo.it/1fsyEqd.

  182 junk bonds have done far better than higher-rated debt issues Thomas Kenny, “High-Yield Bonds: The Historical Performance Numbers, Year-by-Year Total Returns 1980–2013,” About.com Bonds, http://bonds.about.c
om/od/corporatebonds/fl/High-Yield-Bonds-The-Historical-Performance-Numbers.htm.

  183 equities have been slaughtered, down more than 50% Myra P. Saefong, “Can Gold Miners Dig Out of Bottomless Pit?” MSN Money, December 17, 2013, http://money.msn.com/investment-advice/can-gold-miners-dig-out-of-bottomless-pit.

  187 help keep you on your program Northwestern MutualVoice Team, “Why a Financial Advisor Is Like a Personal Trainer,” Forbes.com, June 11, 2013, http://www.forbes.com/sites/northwesternmutual/2013/06/11/why-a-financial-advisor-is-like-a-personal-trainer/.

  Chapter 8: Looking Ahead

  190 no longer be poor nations Bill Gates and Melinda Gates, “3 Myths that Block Progress for the Poor,” 2014 Gates Annual Letter, p. 7, http://annualletter.gatesfoundation.org/~/media/Annual%20Letter%202014/PDFs/2014_GatesAnnualLetter_ENGLISH_1.pdf.

  192 move that slowed its domestic economy “Turkish Central Bank Makes Massive Rate Hikes to Stem Lira Fall,” Reuters. World News Digest. Infobase Learning, January 28, 2014, http://wnd.infobaselearning.com/recordurl.aspx? wid=96208&nid=137818&umbtype=1.

  192 flooded the country to buy the Swiss franc “Stock Markets: European, U.S. Markets Plunge over Economic Fears,” Facts On File. World News Digest. Infobase Learning, August 4, 2011, http://wnd.infobaselearning.com/recordurl.aspx?wid=96208&nid=456203&umbtype=0.

  192 increase in value against the euro “Swiss National Bank Sets Minimum Exchange Rate at CHF 1.20 per euro,” Swiss National Bank press release, September 6, 2011, http://www.snb.ch/en/mmr/reference/pre_20110906/source/pre_20110906.en.pdf.

  193 to borrow vast amounts of money “Greece,” The World Factbook, Central Intelligence Agency, accessed March 6, 2014, https://www.cia.gov/library/publications/the-world-factbook/geos/gr.html; Jack Ewing and Landon Thomas Jr., “Turkey’s Central Bank Aggressively Raises Rates,” New York Times, January 28, 2014, http://www.nytimes.com/2014/01/29/business/international/stress-on-turkish-currency-eases-before-central-banks-emergency-session.html.

  193 The original one 30 years ago cost $3,995 Steven F. Hayward, The Age of Reagan: The Conservative Counterrevolution, 1980–1989 (New York: Crown Forum, 2009), p. 31.